© Reuters. FILE PHOTO: The Swiss National Bank (SNB) is pictured in Bern, Switzerland, November 15, 2023. REUTERS/Denis Balibouse/File Photo
ZURICH (Reuters) -The euro fell to its lowest level against the Swiss franc in nearly nine years on Thursday, as markets bet on early interest rate cuts from the European Central Bank after dovish commentary and soft economic data.
The euro fell to 0.9404 francs against the franc at 1122 GMT, its lowest level since the Swiss National Bank discontinued its minimum exchange rate policy in January 2015.
The SNB, which is due to announce its latest interest rate decision on Dec. 14, declined to comment.
“Perhaps market participants are starting to price in more aggressive interest rate cuts by the ECB next year,” said Stefan Gerlach, chief economist at EFG Bank in Zurich, who expects the SNB to keep its interest rates unchanged at 1.75% next week.
The franc’s rise could make the SNB consider relaunching interventions in the currency markets to weaken the safe-haven currency, but Gerlach thought this unlikely.
“That would mean adding to the foreign exchange reserves and blow up the balance sheet further,” he said. “Thus, I think they will want to avoid that.”
ECB policy hawk Isabel Schnabel this week said further interest rate hikes could be taken off the table, given a remarkable fall in inflation, driving up expectations of an interest rate cut.
UBS economist Alessandro Bee said there was more potential for interest rate cuts by the ECB, which weighed on the euro.
“At the moment the difference between short-rates in the Eurozone and in Switzerland is around 225 basis points but the markets expect this difference to shrink to around 150 bp in the coming 12 months,” he said.
“This makes the euro less attractive against the Swiss franc.”